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Trump Is Pulling the Plug on Key Obamacare Subsidies

REUTERS/Jonathan Ernst

By Yasmeen Abutaleb and Jeff Mason, Reuters

October 13, 2017

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President Donald Trump on Friday urged Democrats to make a deal with him on healthcare after he scrapped billions of dollars in Obamacare subsidies to private health insurers for low-income Americans in a move that raised concerns about chaos in insurance markets and could face legal challenges.

The Trump administration on Friday disclosed the date of the subsidies cutoff after announcing late on Thursday the most dramatic action the president has taken to undercut Democratic former President Barack Obama’s signature 2010 healthcare law.

Attorney General Jeff Sessions said the administration will not make the next payment to insurers scheduled for next Wednesday. The payments cost $7 billion this year and were estimated to be $10 billion in 2018, according to congressional analysts.

Trump has made the payments, guaranteed to insurers under Obamacare to help lower out-of-pocket medical expenses for low-income consumers, each month since taking office in January. But he has repeatedly threatened to cut them off and disparaged them as a “bailout” for insurance companies.

The move drew swift condemnation from congressional Democrats, who accused Trump of sabotaging the law, and threats from Democratic state attorneys general in New York and California to take legal action.

Trump, a Republican who promise as a candidate last year to dismantle the law formally called the Affordable Care Act, urged opponents to reach out to him to make a deal.

“The Democrats ObamaCare is imploding. Massive subsidy payments to their pet insurance companies has stopped. Dems should call me to fix!” Trump said in a post on Twitter early on Friday, calling the law “a broken mess.”

Shares of hospitals and health insurers fell in premarket trading on Friday after Trump’s decision. Shares of Anthem Inc, Molina Healthcare Inc, Cigna Corp and Centene Corp, which are all offering plans on Obamacare markets for 2018, were all lower.

Trump has been frustrated by the failure of his fellow Republicans who control Congress to repeal and replace Obamacare despite seven years of promises to get rid of the law that has brought health insurance to 20 million people.

His decision is likely to please those in his hard-line conservative political base who detest the Affordable Care Act, which many Republicans have attacked as an unneeded government intrusion in Americans’ healthcare.

In a nod to that same constituency, the president signed an executive order on Thursday intended to make it easier for Americans to buy bare-bones health insurance plans exempt from Obamacare requirements.

“It is a spiteful act of vast, pointless sabotage leveled at working families and the middle class in every corner of America,” they said. “Make no mistake about it, Trump will try to blame the Affordable Care Act, but this will fall on his back and he will pay the price for it.”

Insurers and proponents of Obamacare have implored Trump for months to commit to making the payments. Several insurers have cited uncertainty over the payments when hiking premiums for 2018 or exiting insurance markets altogether.

About 10 million people are enrolled in the plans via the law’s marketplace. Many of them receive subsidies, according to the Kaiser Family Foundation.

The White House said late on Thursday that it could not lawfully pay the subsidies anymore. A White House statement said that based on guidance from the Justice Department, “the Department of Health and Human Services has concluded that there is no appropriation for cost-sharing reduction payments to insurance companies under Obamacare.”

“In light of this analysis, the Government cannot lawfully make the cost-sharing reduction payments,” it said.

New York Attorney General Eric Schneiderman said he was prepared to lead other attorneys general in a lawsuit.

The payments were the subject of a lawsuit brought by House Republicans against the Obama administration that alleged they were unlawful because they needed to be appropriated by Congress. A judge ruled in favor of the Republicans, and the Obama administration appealed the ruling.

The Trump administration took over the lawsuit and had delayed deciding whether to continue the Obama administration’s appeal or terminate the subsidies, but in April Trump began threatening to stop the payments.

That case became more complicated in August when a U.S. appeals court allowed 16 Democratic state attorneys general to defend the payments and have a say in the legal fight.

In a court filing released on Friday, Sessions argued that while the law provided funds for tax credits it did allow cost-sharing payments for insurers. It was in that court filing that he announced next week’s cutoff date.

Meanwhile, the political turbulence has affected insurers’ decisions. Anthem, one of the largest remaining Obamacare insurers, in August scaled back its offerings in Nevada and Georgia and blamed the moves in part on uncertainty over the payments.

Blue Cross and Blue Shield of North Carolina earlier this year raised premiums by more than 20 percent, but said it would have raised premiums by only about 9 percent if Trump agreed to fund the payments.

The nonpartisan Congressional Budget Office estimated that cutting off the payments would cause premiums to rise 20 percent in 2018, and that 5 percent of Americans would live in areas that do not have an insurer in the individual market in 2018.

Trump has taken other steps to undermine Obamacare. Last week, his administration allowed businesses and non-profit organizations to seek religious and moral exemptions from Obamacare’s mandate that employers provide coverage for women’s birth control.

The administration also slashed the Obamacare advertising and outreach budget and halved the open enrollment period.

Additional reporting by Steve Holland, Brendan O'Brien and Susan Heavey and Megan Davies; Editing by Bernadette Baum and Will Dunham.